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In its first monetary policy decision of 2016, the U.S. central bank left interest rates unchanged at 0.25% to 0.50%. That decision was widely expected from analysts and investors.
Key highlights in theFederal Reserve meeting statement included:
- Labor market conditions continued to improve even as economic growth slowed late last year.
- Household spending and business investments have been increasing at a moderate rate in recent months.
- Exports have been soft and inventory investments have slowed.
- Inflation continues to run below the committee’s 2% longer-run objective. That partly reflects declines in energy prices and non-energy imports.
- Policymakers said they are closely monitoring global economic and financial developments. They will continue to assess their impacts on jobs and inflation.
- The Fed’s monetary policy stance remains accommodative. The committee expects the economy will grow in a manner that allows gradual increases to interest rates.
- As always, the committee said future Fed moves remain data dependent.
In short, the Fed remains cautious yet not exactly dovish. Some investors hoped the Federal Reserve meeting would end with the committee announcing no more rate hikes would be coming in 2016.
The central bank was not expected to raise interest rates at the Federal Reserve meeting, but markets were anxious about committee members’ tone. Those hoping for an absolute dovish commentary were disappointed. Minutes after the statement, the Dow dipped 108 points, or 0.66%. The S&P 500 and the Nasdaqslipped 0.2% and 1.19%, respectively.
The Fed raised benchmark interest rates in December for the first time in nearly a decade after easy monetary policy enhanced asset prices for several years. But stocks have fallen sharply this year amid concerns around China, a slowing global economy, oil prices, and the pace of the Fed’s tightening.
When it raised rates for the first time in nine years in December, Fed officials’ forecasts signaled four additional hikes in 2016.
But the Fed has not presented a clear picture of when those increases will happen, and that uncertainty is troubling to many investors.
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